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January 21, 2013

How’d I Do? 2012 Performance of My Top Mutual Funds and ETFs

In the November issue of Investment Advisor, I wrote about a process I've developed over the past five years to select and monitor mutual funds and ETFs. It's called the Fiduciary Scorecard and like any tool of this sort, the proof is in the pudding. Therefore, I thought I'd look at a few of the funds I selected in January 2012 and examine how they performed for the entire year. I should clarify a few things before we proceed. First, the scorecard measures a fund in relation to its specific peer group. Hence, it's possible that a fund may have performed poorly, but relative to its peers, received a high score. Therefore, category selection becomes an important step.

Overall, I'm pleased with the results. In fact, 70% of all funds finished in the top half of their category. I'll divide the performance according to Morningstar's percentile rank where 1 is the best and 100 is the worst. We'll concentrate on the funds that finished in the top half of their peer group.

As mentioned earlier, the Fiduciary Score and the percentile rank only indicate how a fund performed relative to its peer group. This does not imply that the funds with the highest Fiduciary Score will provide the best returns. A good example of this is the Arbitrage fund which had a total return of 0.44% in 2012. Clearly not a good return, but it did rank in the top half of its peer group. Conversely, a fund may also have a low score and provide a good absolute return.

In the quest of selecting good funds, I realize there is no crystal ball. However, the aforementioned Fiduciary Scorecard has provided me with a fast, efficient and fairly good selection tool. Going forward, I will be looking for ways to improve it on the margins. I'll keep you posted.

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